Managing Your Credit Responsibly for Financial Gain

Many people know at least a few people who have struggled with their finances over the years. It may have occurred to you to simply forgo credit cards and loans altogether so that you aren’t tempted to fall into the same trouble. While this may be a noble goal, it may not be the best course of action given how important having a good credit history and using financial leverage can be. Loans are used to purchase items such as cars and homes, and ownership of these is often considered advantageous over leasing.

Furthermore, your credit score and history is sometimes reviewed when you apply for a new job, apply to rent a home and even more these days. So it is necessary to use credit in order to establish a good credit rating. The key to avoid falling heavily into debt is to learn how to manage your credit responsibly. By doing so you can maintain that useful credit score while being able to take advantage of borrowing when the time arises.

Find Affordable Credit Cards

Credit cards are a great way to establish credit or to rebuild your credit rating. They are usually easy to get approved for and you have flexibility to choose a credit card that has the best terms for your needs. So which are the best credit cards? Look for low interest credit card offers that offer more than just a low rate during the introductory period. You want to have your credit card for more than six months, so look for credit card that will be affordable for you to use for years to come. In addition to looking for low interest credit card offers, also look for a card that has no annual fee. If you don’t plan to use the card regularly and simply want to use it occasionally to maintain your credit history, then interest rate isn’t as important, but finding the lowest rate available is always a good idea.

If you plan on using your card to manage your daily spending (paying off in full each month of course) you’ll certainly want to look for a great cash back or rewards credit card. Since you’re buying things you’d buy anyway, you can earn cash back or other great rewards at the same time. This strategy can really pay off, but you have to be disciplined and be sure that you always spend within your budget and pay off the balance each month to avoid finance charges.

Pay Balances Off Monthly

Once you have found an affordable credit card to use, you next want to consider how you will use it. Many people get into trouble with credit cards because they allow their outstanding balance to grow. Interest is charged on balances on a monthly basis, so a card becomes more expensive to you the longer a balance is carried forward on your card.

If you’re going to use a credit card regularly, the best idea is to have a strategy for paying off that balance in full every month. There are a few different ways to accomplish this. Some will transfer payments immediately to their credit card after making a charge, while others will keep a running tally of their charges and will keep money in their budget to pay the balance off in full by the due date. Either method is fine, but you should stick with what works best for you.

Live Below Your Means

While some people get into trouble with credit card debt because they allow balances to grow due to overspending, others build credit card debt by relying on them for basic needs and then not paying off the balance each month. A credit card should be used only for planned purchases, and you should only make charges that you can afford to pay off each month. It just takes a small balance to start accumulating interest to get into trouble.

You should make an effort to live beneath your means to avoid using your credit card to buy necessities like gas and food if you don’t have the money in the bank. It’s easy to get into the habit of telling yourself that it’s okay to use the credit card this one time because you get paid in a few days and can just pay it off then. But what often happens is payday comes and the charges don’t get paid off. It starts out as an innocent mistake, but after a few months you could find that you have a balance that simply can’t be paid off in full now.

So, credit cards aren’t necessarily bad. When used properly, they are an essential tool to help you build and maintain a high credit score, which will save you money on future loans. On the other hand, credit cards in the wrong hands can be financially devastating. But if you practice managing your credit responsibly you’ll find that they can do a lot to improve your finances.

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

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